A business that isn’t prepared to sell versus a business that’s optimized for sale: the spread is two to three times the valuation. That number isn’t theoretical. It came directly from Cody Jones, who built and exited Callaway-Jones at a multiple well above the top of the industry’s typical range, and who has spent the year since the sale talking to other funeral home owners about why most of them won’t hit the same number.
Dennis Yu sat down with Cody in Austin to record a Coach Yu Show episode. Cody is now building Funeral Home Exit as a resource for other owners thinking about a sale or succession. The playbook he walked through is industry-specific in its details and completely general in its mechanics. If you are an owner of a closely-held business in any industry, the same principles apply, and most of them are getting violated right now in ways that are costing you valuation.
The math of multiples, briefly
The standard valuation model for funeral homes (and most lower-middle-market businesses) is EBITDA times a multiple. Earnings before interest, taxes, depreciation, and amortization, times a number that depends on quality and risk. In funeral services, that multiple typically runs 4x to 7x or 8x at the top end. Outliers sit above. Cody sold above the outlier range, and he was direct about why.
Two levers move that multiple. The first is the cleanliness and credibility of the EBITDA figure itself. The second is how transferable the business is once you walk out the door.
Cleaning up EBITDA is mostly mechanical work. Stop running personal expenses through the business. Reclassify one-time costs. Document everything. Get your financials to within 60 days of current, which most owners cannot do. Most independent owners can’t produce a clean P&L on demand, and buyers notice immediately.
The transferability lever is where the spread actually opens up. If the buyer believes the business needs you in it to keep producing the same EBITDA, they discount the multiple aggressively and they tie you to the deal with earn-outs and multi-year employment requirements. If the buyer believes the business runs without you, the multiple expands and the deal terms get cleaner.
The two-week test
Cody’s litmus test for transferability is brutally simple. Can you leave for two weeks without checking your phone? If yes, try a month. If your team can operate for a month without your input, you have a business. If they can’t, you have a job you happen to own.
Most owners fail this test and don’t know they fail it. They’ve built personal indispensability disguised as leadership. The customer relationships go through them, the strategic decisions go through them, the hiring goes through them, and the cultural tone is set by their presence. Strip them out and the place runs differently within days.
Acquirers know exactly what to look for. Documented SOPs. A management layer that can make decisions in the owner’s absence. Vendor relationships that aren’t held together by personal trust. Customer pipelines that survive the introduction of a new face. If those aren’t in place, no amount of clean financials will get you the top of the multiple range.
“If you can be gone for a week, that’s great. That’s a starter. If you can be gone for two or three weeks and not need your phone on, then you’re getting somewhere.”
The personal expense problem
Cody flagged something that Dennis sees in almost every owner-operated business: personal expenses are running through the books, and the owner doesn’t realize how much it’s costing them at sale time.
The math is direct. Every dollar of personal expense you run through the business reduces EBITDA by a dollar. At a 6x multiple, that’s 6 dollars off your sale price for every dollar you funneled through the business. If you’ve been running 80,000 a year of personal spend through the business (vehicles, golf trips, vacation properties, etc.), that’s roughly half a million dollars in valuation. At 8x or higher, it’s closer to 650,000.
The cleanup is harder than it sounds. Buyers may accept these as add-backs in due diligence, but the burden of proof is on the seller, and the negotiation gets messy. The clean version is to pay yourself a real salary, distribute profits explicitly, and keep your personal life out of the business books for at least the 18 to 36 months you’re preparing for sale.
What changes the deal terms (not just the price)
Inexperienced sellers focus on the headline number. Experienced acquirers know that terms move more value than price. Two deals at the same headline price can have radically different real values once you factor in earn-out conditions, cash-at-close percentages, seller financing, employment requirements, and non-competes.
A few patterns Cody walked through:
Seller financing is increasingly common in smaller deals. A higher headline price is funded by the seller carrying paper on a portion of the sale, paid out of continued earnings. That can make sense for a buyer who can’t write a check for the full price and for a seller who wants ongoing income. It also concentrates risk back on the seller if the business stumbles post-close.
Broker fees in the funeral profession run roughly 4 to 6 percent and are negotiable. The broker’s job is to package the business, source multiple bidders, and run a bid process that establishes real market value. Without a broker, owners are negotiating against asymmetric information, and the bids reflect that. Cody compared offers from the same buyers four years apart, with and without a prepared business and a broker-run process, and the difference was, in his words, “life-changing.”
Multiple bidders matter. A bid process establishes credibility on price. A single-offer process gives the buyer all the negotiating leverage. Owners who go to market with one buyer at the table are systematically leaving money on the table, even when the buyer is well-aligned culturally.
The 18-to-36-month window
The honest preparation window is 18 to 36 months, done right. Less than that and you’re cleaning the books while you’re already in conversations with buyers, which is the worst possible time to be doing structural work. More than that is fine and increasingly the right move as boomer-aged owners think about succession 5 to 10 years out.
Inside that window, the order of operations is roughly:
Get the financials clean and current. Document the SOPs that exist informally in your head and your tenured managers’ heads. Build the management layer that can run the operation without you. Take longer and longer trips to test whether the management layer actually works. Address deferred maintenance, real estate questions, fleet and vehicle accounting, and any vendor relationships that aren’t on paper. Establish a pre-need or recurring-revenue program that creates predictable forward visibility. Then start the bid process.
Most owners do this in the wrong order, or skip steps, and the price they pay shows up in the multiple they receive.
What “exit-ready” actually buys you
Cody made a point that Dennis has been hammering at for years: the headline number is one variable, and it’s not the most important one.
Exit-ready owners get to choose. They get multiple bidders. They get to walk away from a deal whose terms they don’t like. They get cash at close instead of multi-year earn-outs. They get freedom from non-competes that lock them out of their own industry. They get the option to stay involved on their own terms or to walk free on day one.
Unprepared owners take whatever’s offered, because they have to.
The whole point of the 18-to-36-month preparation window is to move yourself from the second category into the first. That is the entire game.
Sources and further reading
Cody is writing about his own takeaways from the conversation we recorded on his site, including the personal moments that didn’t make the main edit. Dennis has his own write-up of the day in Austin over on dennisyu.com, focused on the operator-to-operator lessons. And the Local Service Spotlight team pulled out the lessons that apply specifically to local service business owners in industries adjacent to funeral services.
If you’re a funeral home owner, the place to start is the valuation calculator at funeralhomeexit.com. It takes a few minutes and gives you a starting range based on the same EBITDA framework Cody used himself.
If you’re a business owner outside the funeral profession, the playbook still applies. Get your books clean. Build a management layer. Pass the two-week test. Run a real bid process. Negotiate terms, not just price. The valuation difference between an owner who does that work and one who doesn’t is the difference between retiring well and selling a building.
Dennis Yu
Dennis Yu is the CEO of Local Service Spotlight, a platform that amplifies the reputations of contractors and local service businesses using the Content Factory process. He is a former search engine engineer who has spent a billion dollars on Google and Facebook ads for Nike, Quiznos, Ashley Furniture, Red Bull, State Farm, and other brands.
Dennis has achieved 25% of his goal of creating a million digital marketing jobs by partnering with universities, professional organizations, and agencies. Through Local Service Spotlight, he teaches the Dollar a Day strategy and Content Factory training to help local service businesses enhance their existing local reputation and make the phone ring.
Dennis coaches young adult agency owners serving plumbers, AC technicians, landscapers, roofers, electricians, and believes there should be a standard in measuring local marketing efforts, much like doctors and plumbers must be certified.